Dr. Larry Hill, professor of economics at Lewis University in Illinois, can explain the difference between Trump’s economic action and Biden’s economic action.
See below for a synopsis of his thoughts.
My wife always corrects me when I ask her if she needs something from the “Ice Box.” I’m reminded it is a “Refrigerator.” Well, I don’t care what you call it. They are the same thing.
Bidenomics is just another name for Keynesian (father of modern economics) Fiscal policy, and Trump’s Trickle Down is no more than Adam Smith’s (father of economics) Classical Supply-side economics.
Smith proposed that depression wasn’t possible. Over time with the normal invisible hand (self-interest and Competition) the economy in the long run would balance itself. Laissez Faire, as little government as possible was the best remedy of the business cycle.
Keynes came along and stated, “I agree the economy will balance itself in the long run, but in the long run we are all dead.” He proposed government fiscal policy (spending and taxation) and monetary policy (interest rates and money supply) to spur and restrain the economy.”Given the analysis of Supply-side economics failures over the years it is hard to believe a major party would still support the Supply side. Let’s see if I can back that statement up.
Supply Side Economics
The supply side starts with a massive tax cut for the rich and big corporations. This is what Trump did his first year in office.
The theory is that the rich do most of the savings and corporations will add manufacturing and other capabilities. The supply of money due to the increase in savings will have banks lowering the interest rate, which further increases economic activity. (This takes six to nine months.)
- Businesses make a business plan and present it for loans. (This takes six months.)
- Once the loan is granted, the businessperson hires an architect to build the facility. (This takes six months to a year).
- The building has to be built. (One to two years of work.)
- Machines must be purchased. (Six months of work.)
- Finally, Labor must be hired. (Six months of work.)
What are the negatives to Supply-side?
1. The corporations did not spend the money Trump gave them on business expansion. Instead, they repurchased their company stock outstanding. With less stock to spread profits over the stock prices increased current stockholder equity.
2. The disparity of wealth increased. The richer got richer and the poor got poorer due to the tax cuts to the rich. When that happens, there is more social unrest. Occupy the City protests and starting of Black Lives Matter (different names at the time) movements.
3. It takes too long. Anywhere from three to six years.
4. There is the Crowding out effect. Trump was a massive spender and the government has refinanced its debt causing interest rates to increase. That negates the whole theory.
On the other hand, Keynesian (Bidenomics) requires the government to give out money in contracts. Auditors watch over the process and make sure work is being done. There is a multiplier effect on the fiscal side too. Contractors need raw materials and machinery and so on. The fiscal multiplier works itself out after six to nine months. Biden has signed several bills to do just that.
There is a fiscal multiplier on the Supply side too, but it takes years to work out.